Bankruptcy may improve your credit rating.

By Jack, on August 22nd, 2006

One of the great misconceptions among people whose debt has gotten out of control is the belief that bankruptcy will ruin their credit rating. I was talking to an elderly woman who had been slowly chipping away at $16,000 in credit card debt even though she had only a few hundred dollars a month of social security for income and was disabled. She felt bad for not paying off her debt and believed that if she filed bankruptcy she would “ruin her credit.”

In fact I think the opposite would happen. Bankruptcy would relieve her of the burden of all that debt, and her credit rating would actually improve.

If you are up to your eyeballs in overdue debt, your credit rating is already about as low as it can get. I saw one person whose credit report showed that his credit was worse than 97.5% of all people rated. No way his credit would get worse with bankruptcy.

If you cannot handle your bills, for whatever reason –lost your job, medical bills, whatever — you should be talking to a lawyer who specializes in bankruptcy. You would often be much better off paying their fees than you would trying to pay down the debt.